Supermarket Chain Delhaize Forces Franchisers To Sell Food Products Below Cost
The latest inflation fighting strategy in a world that has now completely forgotten the threat of "disinflation", and instead is relishing 30 year highs in sugar and 150 year highs in cotton, comes from Belgium where supermarket chain Delhaize has been exposed as coercing 120 franchisers to sell products at a loss. As a result, said franchisers, formerly on very good terms with the supermarket operator, have organized themselves into an interest group with its own steering committee to make their grievances heard. And while the outcome of this escalation will certainly not be pleasant for any of the parties involved, one thing is certain: prices at both Delhaize supermarkets, and Belgian competitors who follow suit, are about to surge as retailers have no choice but to seek avoiding bankruptcy through reindexing prices. Which makes us wonder just how many supermarket stores and grocery retailer in the US use comparable tactics? But have no fear: according to the CPI, food inflation in December at 0.1% was the lowest it has been in five months. And with nobody having the guts to tell Bernanke that the food emperor is completely naked, we are 100% confident that everyone in America will be able to afford the 0.1% increase in food prices.
More details form Retail Detail, Google translated:
Delhaize Over 120 disgruntled franchisees have formed an association to Delhaize together to express their grievances dramatic drop in gross margins. According to independent supermarket owners, they are from the central even forced to sell certain products below cost. Is simply not true, however, respond Delhaize. It came VTM journalist Patrick Van Gompel heard that franchise stores by Delhaize Group are required to sell products at a loss . Partly for that reason decided to self-AD Delhaize supermarket operators last fall that it was time to organize themselves into an interest group. The founders believed that the network of Delhaize affiliates so extensive that it was high time to group them.
The association also calls on all partners Delhaize Delhaize franchisees also to join the grouping. Even if it only temporarily to Dutch franchisees.
Some involved weekly managers inform retail detail dozens of products with a negative margin to be sold. This week would be an estimated one to twenty products.
The way the margin reductions are imposed from above, both through content and through adjustments to price changes. If content changes are weighing changes with product packaging such bigger or smaller quantities at the same price offered at lower prices.
In one sample came to the observations that some drinks this week striking yield low margins. This week, the margin of Delhaize supermarket owners on a bottle of Johnny Walker whiskey brand from a mere 1.84%. Duvel on a tank, the entrepreneurs then a 3% margin, while a Jupiler cook a margin of 0.4% is bad.
More generally, margins of independent Delhaize supermarket managers under severe pressure. Chris Opdebeeck showed in its annual study of the mass distribution itself, that the margins of franchise owners between 2007 and 2008 have fallen significantly. By the price action of the supermarket chains are the profit margins of the supermarket owners under heavy pressure.
According to the supermarket owners, the entire margin in ten years time 10%. This while the margin to be abandoned, for participation in transportation costs such as publicity and participation, in the same period rose 5%. The loss amounted to gross margin throughout the past ten years a total of 5%. In other words, 5% less income.
And if franchisers are hurting, with their limited cost exposure, one can imagine how much pain the independents must be in:
One might wonder why only the franchisees face these problems. After all, everybody struggles with pressure on gross margins due to rising costs and a negative pricing environment? Independent supermarket owners are black sheep in the current distribution landscape since they have no way at the low cost infrastructure of other great players can. Their cost structure is simply much higher.
Competitor eminently Colruyt Benefit already lower fixed costs. Colruyt example, plays no music in stores, making it Sabam not have to pay, and did not even have to paint parking stripes. All costs are really reduced to a minimum. Paradoxically, this rudimentary equipment Colruyt's image as the cheapest only benefit.
The threat of an imminent price war is the catalyst that made everyone realize that losing money is not a workable business model:
The problem of declining margins is not new. Pressure on food prices despite soaring commodity prices and operating costs over many years ensure that pressure is on the gross margin of supermarket owners. Especially the last five years it is becoming worse. The reason the bomb just now beginning to crack , however, is simple.
The arrival of Albert Heijn supermarket operators entails the wits. What if Albert Heijn truly unleashes a price war? What if Albert Heijn is frontally compared Colruyt place? Colruyt can not afford their claim to be the cheapest failing to meet ...
Albert Heijn manages his usual low prices by pushing on the Belgian market, the local supermarkets the biggest victims. Not only the plant will bleed, the local entrepreneur. And playing with his family.
If their income now so on the slope, what will they still remains? The franchisees of AD Delhaize may not have dreamed.
It's a good thing that Belgians are so much better at having a stable and democratic government than their Egyptian peers or else someone could say that buying the Belgian CDS dip could be the best thing to happen to nominal prices since Ben Bernanke discovered the toner cartridge.
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